Court Orders SEC to Review Independent Chair Rule

A federal appeals court on Tuesday ordered the Securities and Exchange Commission to take another look at its rule requiring greater independence among mutual fund trustees.

The U.S. Court of Appeals for the District of Columbia said the regulatory agency was within its jurisdiction to implement the rule, but had not adequately considered the costs to mutual funds or a proposed alternative to requiring funds to have an independent chairman, Reuters reports

The U.S. Chamber of Commerce sued the Commission over the mutual fund rule in September, arguing that the SEC had exceeded its authority and circumvented legal procedures.

The independent chairman rule, approved by a 3-2 vote last year, calls for mutual funds to have a chairman and 75% of its board of directors with no direct ties to advisor that manages the fund's assets.

Designed to put an end to rubber-stamping fund boards, the rule was adopted amid a string of scandals involving abusive market timing and late trading that bilked long-term fund shareholders.

Investment Company Institute President Paul Schott Stevens issued a statement on the court's decision: "The Institute's position has been and remains that the choice of who serves as a chair of a mutual fund board is best left to a fund's directors to decide and should not be dictated by SEC rule.

"The Court of Appeals decision issued today is notable for emphasizing that, in this area as in others, the SEC must give due consideration to cost-benefit issues and to reasonable alternative approaches in developing its regulatory requirements."

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.